Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 26 Oct 2023 by Evgeny Gavrilenkov

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In response to the recent excessive FX market volatility, the Russian authorities imposed some additional elements of capital controls. Since mid-October, the main 43 exporters are obliged to repatriate not less than 80% of their export revenues and then to sell on the local market not less than 90% of these amounts. Besides, these entities should report to the regulator about their plans for FX purchases. From January 1, 2024, this requirement will apply to their foreign branches. From a technical point of view, this approach may help to increase FX supply in the local market in the short run. However, in the long run, the exchange rate will depend more on fundamental factors and less on various administrative limitations. We expect the current account surplus to improve in 4Q23, which should help to reduce the volatility of the FX market. Amid accelerated inflation, the bond market started pricing in the key rate hike on Oct 27. Most investors expect the CBR to hike the rate by around 100 bps. As a result, amid such expectations OFZ yields moved higher, and for 10Y papers, reached 12.2-12.3%. RUONIA (money market rate) also exceeded the key rate (13.1-13.2%). The further dynamics of the market will depend highly on the message to be sent by the regulator. If it remains hawkish, we expect OFZ yield to climb by another 20-30 bps within the next several weeks. If the CBR gives some neutral signal, then stabilization on the current levels looks the most likely scenario. In the seven days ending on September 23, inflation reached 0.24% w-o-w, which brought the MTD and YTD tallies to 0.69% and 5.32%. In October, inflation will be above 0.9%, and inflation y-o-y will climb ...